decisions

Midland Funding Robo-Signing Class Action Settlement Struck Down

Under the terms of the settlement reached in several class actions against Midland Funding for its (apparently past) practice of employing robo-signers to execute affidavits for debt buyer lawsuits, each class member would receive under $20 — and that’s it. The Sixth Circuit rightly decided this was unfair (pdf).

Unfortunately, the Sixth Circuit seemed to think the settlement was unfair primarily because the named plaintiffs (i.e., those whose names actually appeared on the complaints) would receive $8,000 plus the elimination of their debts. The class members who opted into the settlement just got $17.38 each, and still owed their debts:

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Supreme Court to Decide Whether a Defendant Can Get Costs Under the FDCPA

Everyone agrees that a consumer plaintiff who prevails in a Fair Debt Collection Practices Act lawsuit is entitled to get his or her attorney fees and costs paid by the debt collector defendant. But in Marx v. General Revenue Corporation, the question is whether, under the Federal Rules of Civil Procedure, a debt collector can collect costs from an unsuccessful plaintiff. In other words, does the FDCPA apply, or do the rules of civil procedure?

This is a Really Big Deal, because if debt collectors can collect costs from unsuccessful plaintiffs, it will make it riskier to sue debt collectors. Quite apart from the law, the whole point of the FDCPA is to provide a formidable check on debt collection abuses. Damages in these cases are small, so if they cannot recover attorney fees and costs — or if they risk having to pay substantial costs — they will not sue.

If you want people to be able to stop debt collection abuses, then you cannot increase the risk. Doing so will render the FDCPA far less effective as a check on debt collection abuses. If you think consumers and consumer lawyers are running amok, then I suppose you favor the debt collector’s position.

Read Argument preview: Court considers litigation expenses in debt-collection disputes on SCOTUSblog. (Thanks, Graham!)

Wells Fargo Fined $3.2 Million by New Orleans Bankruptcy Judge

Wells Fargo got in major trouble for applying payments first to fees, then to the principal of a mortgage. And because it pissed off a New Orleans bankruptcy judge by fighting the case for five years while the homeowner’s lawyers worked without pay. (From Bloomberg Law)

Banks Winning the Fight to Keep Credit Card Fees High

The Fed decided to expand the CARD Act’s limit on fees charged to credit card holders during the first year of an account to include fees charged before the account was opened, and the banks used to halt enforcement by the Consumer Financial Protection Bureau. And so far, the banks are winning.

As Consumer Law & Policy Blog’s Brian Wolfman points out, “This decision may be the first addressing the validity of a rule enforced by the CFPB. No doubt there will be many more, as the banks try to extricate themselves from as many CFPB regs as possible.”

Arrow Financial Services Loses 9th Circuit Appeal Because the Truth Can Be Misleading

The 9th Circuit US Court of Appeals recently found that “a literally true statement can still be misleading” and therefore a violation of the Fair Debt Collection Practices Act. Arrow Financial Services (a Sallie Mae Company) sent a consumer a letter stating that if Arrow were reporting the debt to a credit reporting agency, it might submit negative information to that credit agency. However, Arrow could not have submitted the underlying debt to any credit reporting agency.

Gonzales, the consumer in this case, sued because Arrow implied a threat of negative credit reporting when it did not have the right to report the debt in the first place. The 9th Circuit agreed.

This decision (PDF) suggests that debt collectors cannot simply use a form that says if and leave it up to consumers to determine whether they are subject to the negative side of the if. In the 9th Circuit, at least, debt collectors may not threaten—even conditionally—unless they actually do have the right to do what they are threatening to do.

(Thanks for the tip, Randall!)

Massachusetts Supreme Court Stops Wells Fargo and US Bank Foreclosures

Today, the Massachusetts Supreme Court decided that if Wells Fargo and US Bank couldn’t keep track of their property, the court wasn’t going to help them take that property away from the consumers living in it. In other words, the “produce the note” strategy not only works, it is the law. At least in Massachusetts.

This decision could spill over into other states, since the foreclosure process in Massachusetts is similar to other states that permit non-judicial foreclosure. Besides, taking property without competent evidence kind of flies in the face of the Due Process Clause.

The Massachusetts court did point a way forward for the banks: valid assignments. Well, obviously. Unfortunately, the court also said the banks cannot go back and get retroactive assignments, so banks that kept similarly shoddy paperwork may be SOL for the mortgages they think they hold now.

Of course, my guess is that, rather than adopt the court’s reasonable, legal suggestion, the banks will spend millions of dollars lobbying Congress to overturn the Due Process Clause, or something.

Wells Fargo’s Freezing of Bank Accounts After Bankruptcy Found Illegal

http://www.flickr.com/photos/ari/3427672405/

Apparently, Wells Fargo has a national policy of freezing its customers’ accounts as soon as they file bankruptcy. This policy apparently has something to do with what Wells Fargo thinks are its obligations to the Bankruptcy Estate. Of course, many debtors will have exempt funds in their accounts, but Wells Fargo stubbornly refuses to give the money back without the blessing of the U.S. Trustee.

The 9th Circuit’s Bankruptcy Appellate Panel just did away with Wells Fargo’s particular brand of debtor harassment, holding that the policy violates the bankruptcy stay. The question of whether Wells Fargo’s violation is willful and entitles the debtor to sanctions will go back to the district court.

Despite the 9th Circuit’s decision, Wells Fargo has apparently decided not to comply, since it plans to appeal.

Wells Fargo’s Procedure of Freezing Accounts After A Bankruptcy Filing Invalidated | Bankruptcy Law Network (thanks, Jay!)
Mwangi v. Wells Fargo Bank, N.A. | U.S. Bankruptcy Appellate Panel of the 9th Circuit

Arbitrating Arbitration

Arbitration is unfair to consumers. This is manifestly obvious to nearly everyone but the arbitration industry and the U.S. Supreme Court.

In Rent-A-Center v. Jackson, The U.S. Supreme Court just ruled that arbitrators have the right to decide whether arbitration is fair or not. That is like asking a bully whether you deserve to get your ass kicked.

Justice Stevens, as the voice of reason for the minority, wondered why the arbitration clause in a contract would remain valid even when the rest of the agreement is not.

The ball is now in Congress’s court. The Federal Arbitration Act is flawed, and the U.S. Supreme Court just made it worse.

Featured image: “Bully” by trix0r is licensed CC BY 2.0.

State of Minnesota Law on Joint Accounts Clarified, but Still in Doubt

About a year and a half ago, I wrote about Judge Frank’s decision that Minnesotans may sue when a debt collector garnishes funds in a joint bank account. After a lot more litigation, pieces of that question were certified to the Minnesota Supreme Court. The Minnesota Supreme Court decided that, under Minnesota law,

  1. A judgment creditor may serve a garnishment summons on a garnishee, attaching funds in a joint account to satisfy the debt of an account holder, even though not all of the account holders are judgment creditors.
  2. Account holders bear the burden of establishing net contributions to a joint account during a garnishment proceeding.
  3. A judgment debtor is initially, but rebuttably, presumed to own all of the funds in a joint account, and if the presumption is not rebutted, all of the funds in a joint account are subject to garnishment.

What that means, in English, is that a creditor may take funds that belong to a non-debtor without notice or an opportunity to respond. This would seem to directly conflict with the due process requirements of the U.S. Constitution (and the Minnesota Constitution, for that matter), but the Minnesota Supreme Court ignored that conflict in reaching its conclusion.

The lawsuit is not over, but the law has shifted back in favor of creditors and debt collectors. For now, it looks like keeping money in a joint account is probably a bad idea if the other account holder owes anyone money.

Savig v. FNB Omaha and Messerli & Kramer, P.A. | Minnesota Supreme Court

I Don’t Believe in Imaginary People

Corporations may be imaginary people, but last week, the U.S. Supreme Court held that imaginary people are entitled to free speech. Along with trolls and gnomes, presumably.

President Obama’s nails the problem in his weekly address:

Weekly Address: President Obama Addresses This Week’s Supreme Court Decision | WhiteHouse.gov